- In April, California fast-food workers are set to get a nearly 30% pay bump to $20 an hour.
- Fast-food chains such as Chipotle say they'll raise prices to offset the state's higher labor costs.
- Two Pizza Hut franchisees are laying off more than 1,200 delivery drivers in California.
Two Pizza Hut operators in California are eliminating their in-house delivery services at hundreds of stores, resulting in more than 1,200 driver layoffs, according to federal employment notices reviewed by Business Insider.
The layoffs, effective throughout February, affect Pizza Hut delivery drivers across California, including at Sacramento, Palm Springs, and Los Angeles locations. The Pizza Hut franchisees are reducing staff as fast-food chains in the state brace for a new law that increases worker pay to $20 an hour in April.
"PacPizza, LLC, operating as Pizza Hut, has made a business decision to eliminate first-party delivery services and, as a result, the elimination of all delivery driver positions," a federal WARN Act notice filed by the fast-food operator with the state's Employment Development Department said.
The Worker Adjustment and Retraining Notification Act requires employers to give notice of plant closures or mass layoffs.
Other PacPizza affiliates filing notices included Southern PacPizza LLC, CalPac Pizza LLC, and PacPartners LLC.
A second Pizza Hut franchisee, Southern California Pizza Co., and its affiliates are also discontinuing its in-house delivery services and laying off about 841 drivers, according to a December 1 WARN Act notice.
The company operates dozens of stores in Orange, Los Angeles, Riverside, Ventura, and San Bernardino counties.
A driver who spoke on condition of anonymity for fear of retaliation told BI that he was offered $400 severance pay if he stuck around through his February 5 layoff date.
He's been a driver for nine years.
"The money they are giving us as severance pay is a slap on the face," he said. "It comes to $3 a month for nine-plus years of service."
Gene Erdman, Southern California Pizza Co.'s chief people officer, did not respond to a request for comment. The franchise also operates under the names SoCal South OC LLC and SoCal Pizza Holdings LLC.
Lisa Hough, the director of human resources for PacPizza in San Ramon, California, was listed as the contact on all five WARN Act notices signed by the company's president, Brian E. Thompson. Hough and Thompson did not respond to a request for comment.
Customers will have to rely on third-party delivery apps to get Pizza Hut delivered from these locations. Most Pizza Hut restaurants in the state work with third-party delivery apps, such as DoorDash, Uber Eats, and Grubhub.
It's unclear whether other Pizza Hut franchisees plan to scrap in-house delivery in California.
Pizza Hut, owned by the Taco Bell parent company Yum Brands, said the company was "aware of the recent changes to delivery services at certain franchise restaurants in California."
"Our franchisees independently own and operate their restaurants in accordance with local market dynamics and comply with all federal, state, and local regulations while continuing to provide quality service and food to our customers via carryout and delivery," Pizza Hut told BI.
Mark Kalinowski, a restaurant-industry analyst, wrote in a note this week that he expected "more harm to come" in various ways as fast-food chains "take action in an attempt to blunt the impact of higher labor costs."
Chains such as Chipotle and McDonald's said they planned to pass the costs of higher wages in California to customers by raising menu prices.
In 2022, Gov. Gavin Newsom of California signed the FAST Act into law. It called for the minimum wage for fast-food workers to increase to $22 an hour in 2023. But corporate chains such as McDonald's, Chipotle, and Chick-fil-A, as well as franchise advocacy groups, fought the law. A coalition of restaurant-industry organizations said the law could raise costs for fast-food restaurants by $3 billion. They rallied to get a referendum on the ballot.
A new law, AB 1228, replaced the controversial FAST Act this year. The minimum-wage increase for fast-food workers was changed to $20 an hour. The new law was viewed as a compromise between the labor unions representing fast-food workers and the restaurant industry.
The law affects 557,000 fast-food workers at 30,000 restaurants in California.
Are you a fast-food worker or franchisee in California affected by the state's wage law? Got a tip? Contact this reporter via email at nluna@insider.com.